June market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of June 2025.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.

Overview

Global markets were roiled by significant volatility following President Donald Trump’s tariff announcements on 2 April, also known as ‘Liberation Day’. Yet, in the face of potential major trade disruption, inflationary impacts have yet to materialise. US core inflation held at 2.8% year-on-year in April and May. In the UK, inflation remained relatively elevated, with the headline rate edging down slightly to 3.4% in May. In the eurozone, the disinflationary trend persisted as the inflation rate fell to 1.9% in May.

The Federal Reserve kept interest rates steady in June, marking the fourth consecutive decision without change. The Bank of England decided to maintain its main interest rate at 4.25% in June, after lowering it from 4.5% in May. The Bank of Japan also decided to keep its rate steady at 0.5% in June reflecting a cautious stance. The European Central Bank cut rates in May and June, ending the quarter at 2.15%.

During the first quarter, major economies showed varied growth patterns amid uncertain global trade policies and fluctuating market conditions. The US economy contracted, with Gross Domestic Product (GDP) due to increased imports and reduced government spending, which offset gains in investment and consumer spending. In the first quarter, the UK’s GDP expanded by 0.7%, driven by growth in services, production and construction, while the eurozone’s GDP rose by 0.6%. Meanwhile, Japan’s economic output contracted as upward revisions in consumption figures mitigated the tension within the current global trade environment. Concurrently, China’s economy exhibited robust growth.

Equities (or shares)

The UK stock market rose, although the positive headline performance masks periods of heightened volatility. UK equities, along with other markets, dropped sharply following President Trump’s tariff proposals on April 2, before subsequently recovering all their losses. A US-UK trade deal and negotiations between the US and China helped investor confidence that a global trade war could be avoided.

US stock markets were among the best performing globally as they climbed to record highs. However, the weakness of the US dollar dampened returns for overseas investors. This was highly surprising given the turmoil at the start of the quarter: US stocks fell sharply when President Trump announced sweeping tariffs on US trading partners. However, markets recovered after he delayed them for 90 days and trade negotiations began, notably with China.

European equities registered solid gains. However, Europe trailed the global equity market and other regions in local currency terms, partly due to persistent worries about the region’s exposure to tariffs.

The Japanese stock market made strong gains despite a wobble in early April. Stock markets in the Asia Pacific ex Japan region enjoyed strong performance, as US-China trade tensions eased.

What do you mean by Equities?

• Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
  
  
  • share prices may increase as the value of the company increases.
    
    
  • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset? 

• Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).

• The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

The price of UK government bonds (gilts) rose, outperforming both US Treasuries and German bunds (in local currency terms). The yield of the 10-year UK gilt fell to 4.5% from 4.7% at the start of the period.

The quarter was positive for global government bonds. US Treasuries rose 0.8%, US corporate bonds rose 1.9% and European sovereign bonds returned 1.9%. The quarter began with an aggressive bond market sell-off post President Trump’s ‘Liberation Day’, and, US Treasuries came under pressure as Moody’s downgraded the US’s credit rating over concerns about the US’s fiscal situation.

European bonds benefited from volatility stemming from the US, as investors sought alternative assets elsewhere. Italian government bonds were notable outperformers. Bonds from Greece and Spain have also seen positive performance.

What do you mean by Fixed Interest?

• Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  
  
• Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  
  
• In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  
  
• Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

• On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  
  
• Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.

Property

For the three months to end-May 2025 (the latest date for which data is available), capital values for all UK commercial property increased by 0.8%, according to property consultant CBRE. This was a slight deceleration in the growth rate seen in the previous three months to February 2025, which was 1.1%. Including rental income, the total return over the three months to end-May was 2.2%. Over the three months, capital value growth was led by the industrial sector, but the office and retail sectors also saw a meaningful growth in values. Interestingly, while the growth in capital values slowed in the industrial and retail sectors, it increased in offices. Rental values grew in all sectors over the three months to end-May, with growth strongest in industrials and offices.

What do you mean by Property?

• For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  
  
• The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

• Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  
  
• The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  
  
• This leads to a number of risks for funds investing in property:
  
  
  • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
     
  • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    
    
  • There may be delays removing your money from the fund if property cannot be sold.
    
    
  • Property fund valuations may be revised periodically, upwards or downwards.
    
    
  • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    
    
  • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.